Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation What Rules Will the SEC Propose for XBRL Statements?
Written by Gary Purnhagen Posted on April 16, 2008
Gary Purnhagen has more than 30 years experience in helping firms in diverse industries meet document processing challenges, including SEC disclosure. His engagements have included responding to the SEC’s EDGAR program, use of the Internet and other digital media for information dissemination, and most recently XBRL. Over the past three years he has given dozens of executive briefings on XBRL and spoken about the standard at a number of professional seminars.
The SEC will soon release their proposed rules for mandating XBRL. If the SEC’s Voluntary Filing Program (VFP) and all the speeches Chairman Cox has given have not convinced the public that the SEC is serious about making XBRL a reality, these proposed rules should.
Since September 2007, when Chairman Cox announced he had requested rules to be developed for XBRL implementation, there has been much speculation as to what these rules would entail. The Advisory Committee on Improvements to Financial Reporting has provided their recommendations, and now we wait to essentially see how aggressively the SEC proceeds. There shouldn’t be any question as to whether these rules will establish that XBRL will be required and provide a timeline for mandated phase-in; rather, what will these rules look like and how quickly will companies be required to comply are the key questions.
What can we expect? Beginning with the EDGAR program back in the 1980s, I have watched the SEC’s modernization initiatives for over twenty years. Based on that experience, here’s my best forecast on what we’ll be seeing in these proposed rules.
The big question is when, i.e., When will companies be required to submit financials tagged with XBRL? I believe we’ll see the SEC propose that the 1,200 largest domestic companies in terms of market capitalization be required to furnish XBRL exhibits beginning in 2009. A company will not have to make its first submission of XBRL exhibits with its 10-K; rather, it will be able to wait until its first 10-Q. These filings will not be official, hence the word “furnished” — just as the current companies participating in the VFP are “furnishing” their financials tagged with XBRL in exhibits.
Having the financials furnished will also alleviate the need to have them audited. Clearly, the accounting industry is not ready for that, and at this time having to do so would make this new ruling very expensive. The main difference between the current volunteers and the companies being mandated to submit XBRL exhibits will be that, under mandate, companies will be required to tag footnotes to financials on a block level.
The proposed rules will also offer a phase-in for the rest of the SEC registrants, probably giving this first group a 12-month period of time before the next wave of phase-ins. The SEC will break up the phase-in groups by:
• The rest of the large accelerated filers (market cap over $700 million)
• Accelerated filers (market cap over $75 million)
• Non-accelerated filers (market cap less than $75 million)
What will be the SEC’s justification for this? It will claim that their VFP has been a success. Seventy-six companies have submitted XBRL exhibits with over 340 filings, and 18 funds have submitted XBRL exhibits for 24 risk/return sections of prospectuses. Volunteers submitting XBRL have reported that doing so wasn’t that expensive or difficult, and that after the first filing both the expense and time required to submit XBRL statements was reduced drastically. The SEC will emphasize the value of XBRL to disclosure documents, pointing to the online XBRL viewers that they have funded –The Interactive Financial Report, Executive Compensation, Financial Explorer, and now the new Mutual Fund Reader. The SEC will also argue that the value of these tools will increase exponentially as the database of XBRL financials grow.
I believe the publishing of the proposed rules will be a major trigger point for companies to begin volunteering in the SEC’s VFP. From numerous conversations I’ve had with executives of companies that are SEC registrants, they will not wait until they are actually mandated to begin submitting XBRL. The proposed rules will be the signal that the SEC is serious about a mandate, which these companies have been waiting for. Companies would rather begin as volunteers and not get caught up in a stampede.
As more companies add to the database of XBRL tagged financials, we’ll see more investors using it and more tools being created, which will lead to other companies, large and small, submitting their financials in this format as well. After all of the carrots that the SEC has been trying to offer to get companies involved, it will in the end be the threat of the stick that gets them involved.
April 16th, 2008 at 9:18 pm
[...] But Gary Purnhagen, writing on the Hitachi XBRL blog yesterday sees the SEC being more aggressive in the roll-out: I believe we’ll see the SEC propose that the 1,200 largest domestic companies in terms of market capitalization be required to furnish XBRL exhibits beginning in 2009. A company will not have to make its first submission of XBRL exhibits with its 10-K; rather, it will be able to wait until its first 10-Q. These filings will not be official, hence the word “furnished” — just as the current companies participating in the VFP are “furnishing” their financials tagged with XBRL in exhibits. [...]